8/28/2009 @ 10:20AM

Amway's China Redux

If making money is China’s real religion, then Kong Xin is a true believer. Grinning like a missionary and dressed like one, too, the 34-year-old entrepreneur was standing in line at Amway China’s Beijing headquarters eagerly waiting to shell out $150 for tubes of toothpaste. For Kong, one of Amway China’s 200,000 active sales representatives, the secret to prosperity amid the country’s chaotic economic growth tastes like mint, and he can’t get enough of it.

Through a bitter global downturn, Amway, the global direct-sales company, is having a banner year, thanks to China. The country is now Amway’s biggest market, with gross sales soaring 27% to 17 billion yuan, or $2.5 billion, in 2008. (Closely held Amway doesn’t release net figures after subtracting for commissions and cost of goods.) The company is projecting a similar increase in 2009 and is investing $15 million in a new factory in Guangzhou.

Success is fueling the daydreams of many like Kong, who usually learn about Amway from friends, family and co-workers breathlessly pushing the company’s 200 products. No matter that these wares often are priced significantly higher than similar products in China’s department stores and corner shops. China’s newly wealthy, eager to have the biggest and the best, are clamoring to own a 50-year-old brand that in the West is more commonly associated with past-generation Americana. Amway, whose Michigan parent Alticor is the 44th-largest U.S. private company on FORBES’ list, has struggled at home in recent years. Some 80% of sales now come from abroad.

Amway’s history in China has not been without struggle, either.

The company arrived in 1995 and quickly drew the ire of the government, which was frightened by an Amway sales culture that inspired almost fanatic devotion. A direct-sales network of interpersonal relationships caused worry that it could one day lure Chinese loyalty away from the Communist Party. Meanwhile, economic reforms had spawned dozens of pyramid-scheme scandals the government was frantically trying to eradicate.

In response, the government banned all direct-sales companies in 1998, claiming they were “evil cults, secret societies and superstitious and lawless activities.”

“When we came to China, the government didn’t really understand what direct selling is,” says Audie Wong, president of Amway China. “Back then a lot of people were very suspicious of us, and it took them many years to understand our approach.”

Unwilling to lose the Chinese market, Amway agreed to deviate from its global model and has opened up 200 retail shops to show those in power it was not a threat. The company has 6,000 employees on its Chinese payroll. Other direct-sales companies made similar adjustments.

“During that period Amway convinced the government we were a trustworthy company that’s not going to run away,” says Hong Kong-born Wong, 57, who’s spent more than half of his 28 years with Amway on the mainland and reports to Eva Cheng, the regional executive vice president, ranked No. 92 on our list of the World’s Most Powerful Women. “We worked very hard to rebuild our brand, and now the government trusts us.”

Today, in the four years since China changed the rules on direct sales following accession to the World Trade Organization, Amway has flourished, pouring money into ad campaigns and training a ballooning sales corps. “If you want to sell a product, you can come up with lots of reasons why people should buy it,” says Wong, though the company tries to ensure that entrepreneurial ardor doesn’t get out of hand. “We tell them not to exaggerate. With more experience they will learn how to counter an objection.”

Kong is a quick study. When he started selling makeup, diet supplements and other Amway products part-time five years ago, he was making 700 yuan, about $85, a month. Today, as a full-time sales representative with 300 customers, he earns $2,340 a month. Last year, Kong said, he netted $22,000, a princely sum in a country where, according to the National Statistics Bureau, the average annual corporate income is about $5,100.

“I come here every other day to make a purchase and sell out within 24 hours,” he enthuses. “Not only do I sell people products they love, but I get to run my own business, rather than work in an office.”

Newer recruits like Xue Fei, 32, are equally motivated. The part-time sales rep discovered Amway from a friend a year ago and now has two chums working for her. “Amway provides good service and products for Chinese people,” she says, carting bags of makeup and vitamins out of the Beijing offices. “Why shouldn’t we be telling our friends about it?”

The fervor is such that the government has barred teachers, doctors, soldiers and college students from working for Amway, out of fear authority figures and young people may be tempted to act irresponsibly in order to make a sale. And skeptics of Amway’s popularity in China remain.

“The company came up with solutions –opening stores and hiring salespeople–to make the government think Amway is a traditional business, which it’s not,” says Sun Baohong, professor of marketing at the
Cheung Kong
Graduate School of Business in Beijing. “Amway is smart. They try to hide the fact that the company is a money collecting system by taking advantage of guanxi,” the powerful web of personal relations essential to success in China.

Wong, the company president, might describe this compliance not as deception but as a management test. After previous stints in Hong Kong and Taiwan, he says, “It has been a fantastic learning experience managing in the three markets. But China dwarfed it all when it comes to scale, complexity and possibility.”

Professor Sun admits Amway’s marketing strategy has proved itself: “People here want to get rich quickly, and their friends make it sound like it’s easy money.”